Fallout: The Financial Crisis

The pros of giving more to Citigroup

Marketplace Staff Nov 24, 2008
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Fallout: The Financial Crisis

The pros of giving more to Citigroup

Marketplace Staff Nov 24, 2008
HTML EMBED:
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TEXT OF INTERVIEW

Steve Chiotakis: Mark Zandy is chief economist at Moodys.com. Mark, another financial institution in government hands. Is this the end of the free market system as we know it?

Mark Zandy: Hahah, no, but it’s certainly big government intervention in the marketplace to try to shore up the market, and I think it’s absolutely necessary and a good move by the government.

Chiotakis: Let’s talk a little bit about the nuts and bolts of this plan with the U.S. government — $300 billion covered by the U.S. government, is that going to be enough? Do you think there’s going to be more down the road?

Zandy: Well I think at Citigroup, they were pretty careful in walling off their very bad assets, the bad residential mortgage loans, commercial mortgage-backed securities, other bad corporate loans. I’m pretty sure they got all of the bad assets into this one bad bank, so to speak, and that’s what the government’s guaranteeing. So I think in the case of Citigroup, they probably got it.

Chiotakis: What kind of money are we talking about in this bailout?

Zandy: Well, it really does depend on how badly these assets perform. Citigroup had to put up a chunk of money as well that will go first as these losses accumulate on these bad assets. And only after that is exhausted will the government’s guarantees start to kick in. So we’ll have to see — it really does depend on how bad the economy is, how long the economy struggles and how that undermines these assets.

Chiotakis: Do you see other banks headed in this direction?

Zandy: There will be more failures, yeah. I do think, though, that the biggest failures are largely behind us, if not completely behind us. I can’t think of another big institution that is as fragile. And of course, I probably would have said the same thing a couple, three weeks ago. But all the weak links in the system are being rung out, and while there will be more failures, I think they’ll be smaller ones.

Chiotakis: Mark Zandy, chief economist at Moody’s Economy.com. Thanks for joining us this morning.

Zandy: Thank you.

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